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  • Writer's pictureHenry Cheatham

Beyond Banks: The Rise of Alternative Lending"​



Alternative lending refers to the practice of providing loans to individuals or businesses through non-traditional channels, such as online platforms, peer-to-peer (P2P) lending, or crowdfunding. This form of lending has gained popularity in recent years due to its ability to offer borrowers more accessible and flexible options than traditional banks.

One of the

primary benefits of alternative lending is its ability to offer loans to

borrowers who may not qualify for traditional bank loans due to their credit

history or lack of collateral. These borrowers can turn to alternative lenders

for smaller loans with less stringent qualification requirements. For example,

P2P lending platforms may use alternative credit scoring methods to assess a

borrower's creditworthiness, such as analyzing their social media activity or

online shopping behavior, to supplement traditional credit score data.

Another

advantage of alternative lending is the speed with which loans can be approved

and funded. Unlike traditional bank loans, which can take weeks or even months

to process, alternative lenders can often approve and fund loans within a few

days or even hours. This can be particularly beneficial for businesses that

need quick access to funds to cover unexpected expenses or take advantage of

new opportunities.

Moreover,

alternative lending can offer more flexible repayment options than traditional

bank loans. Borrowers can choose from a variety of repayment terms and

structures, including fixed or variable interest rates, monthly or weekly

payments, and balloon payments. This flexibility can be particularly beneficial

for small businesses that may experience fluctuations in cash flow and need

more customized repayment schedules.

There are several types of alternative lending options available to borrowers. P2P lending platforms connect borrowers with individual investors who provide

funding for loans in exchange for a return on their investment. Crowdfunding

platforms, on the other hand, allow borrowers to raise funds from a large pool

of individual investors whom each contribute a small amount towards the loan.

Invoice financing is another alternative lending option that allows businesses

to borrow money against outstanding invoices to improve their cash flow.

While

alternative lending offers several benefits, but there are also some potential

drawbacks to consider. One of the main concerns is the higher interest rates

that may be charged by alternative lenders, as they are taking on more risk by

lending to borrowers who may not qualify for traditional bank loans. Borrowers

should carefully review the terms and fees associated with alternative loans to

ensure they are getting a fair deal.

Another

the potential issue is the lack of regulatory oversight for alternative lenders,

which can lead to inconsistent lending practices and potentially fraudulent

activity. Borrowers should research any lender they are considering working

with and ensure they are reputable and legitimate.

In

conclusion, alternative lending provides a valuable option for borrowers who

may not qualify for traditional bank loans or need more flexible repayment

options. However, borrowers should carefully consider the terms and fees

associated with alternative loans and conduct due diligence on any lender they

are considering working with. As the alternative lending industry continues to

grow and evolve, it will be important for regulators to provide oversight and

ensure that borrowers are protected.

Learn more

EBS team


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